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Thursday, August 02, 2007

Global industries and product market sizes and their implications

This is the 3rd installment of facts and figures around the world. (Don't we just love trilogies!) Not so useful for a lot of people, even value investors. Value investors just need to know enough about the companies they invest in order to do well. But hopefully, information here can help to widen your circle of competence.

We shall talk about a few industries and markets here: Steel, Automobile, PC, TV, Game console, Mobile phone.

The global steel industry is an estimated USD 600bn industry with global annual shipment of 1.2bn ton of steel. The No.1 leader in this industry is Mittal Steel with close to 10% market share. Interestingly, our hero, Warren Buffett has a stake in POSCO, a Korean Steel co. which is also one of the lowest cost producers of steel in the world.

To a layman looking at this 1.2bn ton for the first time, this may be just another no. and may not seem impressive at all so let’s translate this to something more powderful. 1.2bn ton of steel translates to 200kg of NEW steel being produced and used every yr for every person on Earth. This means enough steel to make 1 washing machine + 1 fridge + 1 aircon + 1 full set of stainless steel cutlery and 1 Ipod for every person on Earth EVERY YEAR! And this amt has been going up since humans walked this Earth (well it went up a lot more during the last 100 yrs as compared to the past 1000 yrs.)

Btw, consumption of all kinds of natural resources have only gone in one direction since, well, humans walked this Earth, and that is up. Environment fanatics talk about recycling and conservation but the way I see it: it’s a lost cause. Primarily bcos recycling comes at a price and it’s too high. Eg. it cost USD300-400 to produce 1 ton of steel and the truth is scrap steel (i.e. recycled steel) cost almost as much too! Anyways, that’s a topic for another day.

Ok, next. The global automobile industry is an estimated USD 2trn industry (Woah that’s huge! Remember global GDP is only 40trn!) with annual shipment of 70mn cars. Needless to say, the Japanese dominates this industry. 1 in 3 cars on global roads now are Japanese cars and Toyota now produces close to 10mn cars every year ie 1 in 7 cars is a Toyota. With China joining in the 5C’s race, we can expect even more cars and seems like the Japanese will win hands down bcos they are cheap and reliable, just what the masses want.

Fortunately or unfortunately, the rest of the industries/markets are all tech-related and most value investors hate tech bcos tech has never really created much value. No tech product ever stood the test of time, remember Polaroid? Or Walkman? Discman? SegaSaturn? So we may not see these products mention here 20yrs from now.

Anyways, the global PC market is USD 250bn market with annual shipment of 250mn units. This 250mn is an interesting no. bcos the global TV market is an estimated 220mn unit shipment. Hence it probably suggests the maximum ceiling for household products is around 200-300mn global unit shipment per year. This means that when analyzing the next killer household application, this may be a good no. to use as the maximum ceiling for unit shipment. Incidentally, the no. of households in the developed world is roughly 300mn as well.

The global game console market is a small one with a market size of USD 8bn and annual shipment of roughly 30mn units. Of course, if you include the revenue of the software (ie, the games), this market is already bigger than Hollywood. Most pple like to look at the market over its lifecycle though which is roughly cumulative shipment of 150mn units over 5-6yrs. During the last cycle, PlayStation 2 made by Sony shipped an incredible 120mn units over 5 yrs. But this time round, it’s Nintendo stealing the limelight with its Wii console. If you are not familiar with Wii, go google it up and be amazed! Sadly the PlayStation 3 has shipped only a miserable few million consoles to date.

The global mobile phone market is a USD 200bn market with annual shipment of 1bn mobile phones. If you are missing the impact of this, it’s 1,000,000,000 mobile phones! This means that 1 in 6 people globally buys a mobile phone every yr! If you take out the children and the old folks and those in not-so-privileged countries, we can even say that EVERYONE buys a mobile phone EVERY YEAR! If you think Ipod is big, think again! Ipod shipped a mere 100mn units over 4-5 yrs!

The mobile phone is definitely the most impactful killer application in the history of humankind although it may be at the tail-end of its growth. Wish you had bought a Finnish co. with a funny name some 15yrs ago huh!

So what’s the use of knowing all this? Well actually not very useful. It helps you to think about your co. (i.e. the co. you are investing in or planning to invest) in the global scheme of things. What is the market that your co. is competing in. How big is the market? Does your co. have a huge share of the market? These questions and more. With these no.s at the back of your mind, hopefully it will make the analysis easier. Doesn’t mean that you can make money though!

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